Notice of Ways and Means Motion to amend the Income Tax Act
MINISTER OF FINANCE
That it is expedient to amend the Income Tax Act as follows:
1 (1) The portion of subsection 7(7) of the Income Tax Act before the first definition is replaced by the following:
Definitions
(7) The following definitions apply in this section and in subsection 47(3), paragraph 53(1)(j), subsection 110(0.1), paragraphs 110(1)(d), (d.01) and (e) and subsections 110(1.1) to (1.9) and (2.1).
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2020.
2 (1) Section 110 of the Act is amended by adding the following before subsection (1):
Definitions
110 (0.1) The following definitions apply in this section.
specified person means a qualifying person other than a qualifying person that
(a) is a Canadian-controlled private corporation; or
(b) meets prescribed conditions. (personne déterminée)
vesting year, of a security to be acquired under an agreement, means
(a) if the agreement specifies the calendar year in which the taxpayer's right to acquire the security first becomes exercisable (otherwise than as a consequence of an event that is not reasonably foreseeable at the time the agreement is entered into), that calendar year; and
(b) in any other case, the first calendar year in which the right to acquire the security can reasonably be expected to be exercised. (année d'acquisition)
(2) The portion of paragraph 110(1)(d) of the Act before subparagraph (i) is replaced by the following:
Employee options
(d) an amount equal to 1/2 of the amount of the benefit deemed by subsection 7(1) to have been received by the taxpayer in the year in respect of a security (other than a security that is a non-qualified security) that a particular qualifying person has agreed after February 15, 1984 to sell or issue under an agreement, in respect of the transfer or other disposition of rights under the agreement or as a result of the death of the taxpayer because the taxpayer immediately before death owned a right to acquire the security under the agreement, if
(3) Subsection 110(1) of the Act is amended by adding the following after paragraph (d.3):
Employer deduction — non-qualified securities
(e) an amount equal to the amount of the benefit deemed by subsection 7(1) to have been received by an individual in the year in respect of a non-qualified security that the taxpayer has agreed to sell or issue under an agreement with the individual, if
(i) the taxpayer is a specified person,
(ii) at the time the agreement was entered into, the taxpayer was the employer of the individual,
(iii) an amount would have been deductible in computing the taxable income of the individual under paragraph (d) if the security were not a non-qualifying security, and
(iv) the conditions in subsection (1.9) are met in respect of the security;
(4) Section 110 of the Act is amended by adding the following after subsection (1.2):
Determination of non-qualified securities
(1.3) Subsection (1.31) applies to a taxpayer in respect of an agreement if
(a) a particular specified person agrees to sell or issue securities of the particular specified person (or another specified person that does not deal at arm's length with the particular specified person) to the taxpayer under the agreement; and
(b) at the time the agreement is entered into (in subsection (1.31) referred to as the "relevant time") the taxpayer is an employee of the particular specified person (or another specified person that does not deal at arm's length with the particular specified person).
Annual vesting limit
(1.31) If this subsection applies to a taxpayer in respect of an agreement, the securities to be sold or issued under the agreement, for each vesting year of those securities, are deemed to be non-qualified securities for the purposes of this section in the proportion determined by the formula
A/B
where
A is the amount determined by the formula
C + D − $200,000
where
C is the total of all amounts each of which is the fair market value at the relevant time of each security under the agreement that has that same vesting year, and
D is the lesser of
(i) $200,000, and
(ii) the total of all amounts each of which is an amount determined for C in respect of securities that have that same vesting year to be acquired under agreements (other than the agreement) entered into at or before the relevant time with the particular specified person referred to in subsection (1.3) (or another specified person that does not deal at arm's length with the particular specified person); and
B is the amount determined for C.
Non-qualified security designation
(1.4) If a particular specified person agrees, at any time, to sell or issue one or more securities of the particular specified person (or of another specified person with which the particular specified person does not deal at arm's length) to an employee of the particular specified person and the particular specified person designates one or more securities to be sold or issued under the agreement as non-qualified securities in the agreement, those securities are deemed to be non-qualified securities for the purposes of this section.
Ordering of acquisition of securities
(1.41) If a taxpayer acquires a security under an agreement and the acquired security could be a security that is not a non-qualified security, the security is to be considered a security that is not a non-qualified security for the purposes of this section.
(5) Section 110 of the Act is amended by adding the following after subsection (1.8):
Notification — non-qualified security
(1.9) If a security to be issued or sold under an agreement between an employee and a specified person is a non-qualified security, the specified person shall
(a) notify the employee in writing that the security is a non-qualified security on the day that the agreement is entered into, if the security is deemed to be a non-qualified security because of subsection (1.31); and
(b) notify the Minister that the security is a non-qualified security in prescribed form filed with its return of income under this Part for the taxation year that includes the time that the agreement is entered into.
(6) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2020.
(7) Subsections (3) to (5) apply in respect of agreements to sell or issue securities entered into after 2019.
3 (1) Paragraph (b) of the description of E in the definition non-capital loss in subsection 111(8) of the Act is replaced by the following:
(b) an amount deducted under paragraph (1)(b) or section 110.6, or deductible under any of paragraphs 110(1)(d) to (g) and (k), section 112 and subsections 113(1) and 138(6), in computing the taxpayer's taxable income for the year, or
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2020.
4 (1) Subsection 143.3(5) of the Act is amended by striking out "and" at the end of paragraph (c), by adding "and" at the end of paragraph (d) and by adding the following after paragraph (d):
(e) this section does not apply to prohibit the deduction of an amount under paragraph 110(1)(e).
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2020.
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